The Securities and Exchange Commission (SEC) has formalized its plan to enforce a mandatory nine-year cap on independent directors, while providing them with security of tenure at the same time.
The SEC has issued a draft memorandum circular, which sets the rules on the duration of term and amends its rules on term limits of independent directors.
The issuance is expected to strengthen the independence of independent directors as well as to align with the international best practices under Republic Act 11232, otherwise known as the Revised Corporation Code of the Philippines.
‘Basically, we will be strict on the nine-year limit. We will do away with exemptive reliefs. At the same time, to make the independent directors truly independent, we’re giving them a three-year security of tenure. In other words, once voted, he or she is elected for three years, not one year only,’ SEC chairperson Francis Lim said.
A company’s independent director is currently allowed to serve for a maximum cumulative term of nine years, after which, the independent director shall be perpetually barred from re-election as such in the company, but may continue to qualify as a non-independent director.
However, in the instance that a company wants to retain an independent director who has served for nine years, the firm’s board should provide meritorious justifications and seek shareholders’ approval during the annual shareholders’ meeting.
Under the draft memorandum circular, an independent director shall be elected for a three-year fixed term and subject to the term limit.
An independent director should serve for a maximum cumulative term of nine years, with an independent director who has served the maximum term shall be disqualified to be an independent director in the same company.
Pubcly listed firms and registered issuers are given until Oct. 15 to submit their comments and inputs on the draft memorandum circular on the duration of term and term limit of independent directors.